- 09
- Apr
With the current situation in the financial markets it looks like there are going to be some pretty rough times ahead. There has been a serious loss of liquidity in the financial markets which means that banks are finding it more difficult to get access to the funds that they need in order to offer mortgages and cheap loans. What this means is that the price of credit will probably go up, and this is expected to show through on mortgage rates which will probably rise. Abbey has been the first high street bank to raise its main home loan products.
One of the suggestions that is being put forward by financial advisors is for those who are in a position to do so to overpay as much of their mortgage as possible. This will allow customers to reduce their exposure to increased interest rates. Studies show that a customer with an average mortgage of £100,000 who makes a £5,000 lump sum payment can reduce the amount of interest repaid over 25 years by £24,000. On the same mortgage, at a rate of 7.75%, a customer making overpayments of £200 a month would reduce the amount of interest paid by £66,047 over the life of the loan.
You should check the terms of your home loan with your lender but the vast majority of mortgages in the UK do allow a certain amount of over payments to be made without incurring any charges, so if you are in a position to do so, making overpayments pays off in the long run.
Don’t be fooled into thinking that the Bank of England’s rumoured rate drop plan will affect mortgage rates. Whilst there is talk that the Bank will drop the base rate from 5.25% to 5% in the near future, this is unlikely to affect the currently high inter-bank lending rate, which is responsible for the rate offered to you by your loan lender.
